As housebuilders go, Persimmon (PSN) is trading impressively. Last year, for example, underlying profits rose by 52 per cent to £225m and operating profit margins were up from 10 per cent to 13 per cent. That's still a long way from the heady heights of 2007 when margins touched 21 per cent, but management reckons that by the end of this year they could be up to 17 per cent.
- Underlying profits up strongly
- Huge land bank
- Strong cash generation
- Big dividend payout
- Mortgages hard to come by
- Consumer confidence weak
Much of this improvement comes as a result of a change in the product mix. That means building fewer flats and more family homes, which also helped to lift average selling prices by almost 6 per cent to £175,640. Legal completions in 2012 rose 6 per cent to 9,903, and the group has the capacity to increase this to 14,000. But that will be hard to achieve, not just because UK consumers remain under severe pressure but because mortgages are still hard to come by.
As a result, Persimmon has made heavy use of incentives, including the FirstBuy scheme for newly built homes that is jointly funded by the government and house builders. Last year 26 per cent of Persimmon's completions were made with a retained equity share. This means Persimmon keeps part ownership of homes sold - typically 10 per cent - and its share is realised on re-sale of the home or if the owner buys out the housebuilder partner. In this way, Persimmon has built up retained equity of £203m, which will provide useful cash flow as first-time buyers move home.
| PERSIMMON (PSN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 881p | MARKET VALUE: | £2.67bn | |
| TOUCH: | 890-881p | 12-MONTH HIGH: | 900p | LOW: 521p |
| DIVIDEND YIELD: | see text | PE RATIO: | 13 | |
| NET ASSET VALUE: | 658p | NET CASH: | £202m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.42 | 7.0 | 2.10 | nil |
| 2010 | 1.57 | 95.5 | 24.8 | 7.50 |
| 2011 | 1.54 | 147.2 | 36.1 | 10.0 |
| 2012 | 1.72 | 221.8 | 56.3 | 75.0 |
| 2013* | 1.91 | 270.4 | 68.7 | see text |
Normal market size: 3,000 Matched bargain trading Beta: 1.2 *Bank of America Merrill Lynch estimates | ||||
Cash generation is strong anyway - in 2012 the group generated £178m even after buying 14,800 building plots, taking its land bank to £1.49bn or 68,200 plots, which is virtually seven years worth at current output levels. Crucially, around 40 per cent of plots with planning permission were bought without permission. In other words, they cost comparatively little; for every three plots it buys with planning consent, Persimmon can buy seven so-called 'strategic' plots.
And Persimmon remains on target to deliver its long-term objective of returning £1.9bn of surplus capital to shareholders by June 2021. This works out at 620p a share, and the first 75p will be paid this June and investors buying the shares now will be eligible for the payout. After that, there is nothing scheduled until a 95p dividend in June 2015. Then there are rising pay outs in alternate years until 2021. In all, this averages out as an 8.8 per cent yield over the eight years.
